This is a continuation of the guest series by Drew Waight analyzing NeurogesX for investment.

Last time I covered the therapeutic market area of neuropathic pain, which is NeurogesX’s major area of focus. This time I’ll be doing the due diligence on their first product candidate NGX-4010, and it’s safe to say that the entire company rests with the fate of this therapeutic. NGX-4010 is a non-narcotic analgesic formulated in a topical (transdermal) patch containing an 8% concentration of synthetic capsaicin. Capsaicin is released from the patch and absorbed into the skin without significant absorption into the bloodstream.

The chemical capsaicin is popularly known as the compound which gives hot chili peppers their spicy properties and natural concentrations range from 0.1% to 1% w/w. Chemically known as trans-8-methyl-N-vanillyl-6-nonenamide, it is a highly selective agonist for the transient receptor potential vanilloid receptor 1 (TRPV1). TRPV1 is a ligand-gated, nonselective, cation channel preferentially expressed in nociceptive sensory nerves. TRPV1 responds to noxious stimuli, including capsaicin, heat, and extracellular acidification, and integrates simultaneous exposures to these stimuli.

Intellectual Property

Low doses of capsaicin cream have long been used successfully for relief of neuropathic pain. However the first published study to use high doses (5-10%) in combination with regional anesthesia (to numb the normal burning sensation accompanying such high dose) was published in 1998 from UCSF. This study showed that at these levels of capsaicin, 90% of patients (N=10) were relieved from neuropathic pain from 1 to 18 weeks. Interestingly, in 1996, prior to the publication, three of the authors of the study patented the use of high percentage capsaicin with the Regents of the University of California as an assignee on the patent. Subsequently, the first author on the above study, Dr Wendye Robbins, was issued another patent in 1997 (again UC Regents were the assignee) whereby local anesthetic was administered through the use of a transdermal patch containing the high concentration of capsaicin. Dr. Robbins founded NeurogesX in 2000, licensing the patents from the University of California.

That pretty much brings us up to speed on the intellectual property with one final important caveat. The first patent outlining the use of high concentration capsaicin was issued to three authors, and two of the three were not UCSF faculty and so did not assign their patent rights to the University of California. Anesiva, a company focused on the development and commercialization of treatments for pain, including injection or infiltration of a capsaicin derivative for post-surgical pain, osteoarthritis or interdigital neuroma, has licensed from one of the non-assigning inventors the right to use the technology under the method patent.

So NeurogesX has the worldwide exclusive license for a high concentration capsaicin transdermal patch. The use of high-concentration capsaicin itself is not exactly in the public domain but neither does NeurogesX have exclusive worldwide rights. Therefore, it goes without saying any investment in NeurogesX is banking on the utility of the transdermal patch method of capsaicin delivery. As it turns out the only current alternatives to a transdermal patches are a topical creams which of course have the drawback of wildly inaccurate dosing (FDA won’t approve) and injection such as Anesiva is developing for post surgical pain.

Pipeline

Now that we’ve covered the therapeutic market and the intellectual property let’s move on to the pipeline. NGX-4010 has completed two phase 3 clinical trials that have met their primary endpoints, one in PHN and one in HIV-DSP. The results demonstrated that a single 30 or 60 minute application of NGX-4010, depending on the indication, may provide at least 12 weeks of clinically-meaningful pain relief. NeurogesX expects to file a marketing authorization application in Europe for NGX-4010 in 2007 based upon existing clinical trial data, and if the safety and efficacy of NGX-4010 are confirmed by two ongoing pivotal Phase 3 clinical trials, they intend to file a new drug application in the United States in 2008. Furthermore NGX-4010 is currently in phase 2 clinical trials for PDN.

The Neurogesx story is fairly straightforward for a biotech company. First, the therapeutic market is underserved in terms of an easily administered, but long lasting, transdermal patch. Secondly, the intellectual property situation is not ideal but NeurogesX has 30% of the license for high-concentration capsaicin and a monopoly on the patch delivery. Finally we are looking at a late stage development pharmaceutical which needs secondary phase 3 studies before filing the NDA.

That being said, the elephant in the room here is the indication for PDN. By far the biggest opportunity in a therapeutic for neuropathic pain exists for this disorder. Apparently NeurogesX plans to file the broad label authorization for NGX-4010 MAA in Europe in 2007, and use the proceeds from the European market to fund the ongoing trials for PDN domestically. The nuances of this approach are probably known only to the management and the underwriters, but I will try to read between the lines considering the information publicly available on the clinical trials. It seems that patients with PDN were involved in the original Phase I/II tolerability studies of NGX-4010. These patients reported a 32% decrease in pain, but for some reason the PDN clinical program has been halted awaiting the IPO filing. I read this as there being complications with the performance of NGX-4010 in the original phase 2a trial, perhaps the longevity of relief seen with PHN was not paralleled in the PDN case, but anything is possible. At any rate I feel NeurogesX is playing the PDN indication fairly close to the vest, and this must be noted because, as mentioned above, this is clearly the lions share of the peripheral neuropathy market.

Next time I’ll wrap up with the Neurogesx financial situation and put it all together for a final verdict.

Filed under: NeurogesX (NGSX) | 4 Comments »

This is a guest series from Drew Waight a graduate student at NYU. Leave him a comment if you like his analysis and maybe he’ll send another one in. I should be back in August when I’ve finally made my escape from the lab and no longer have two jobs. Until then, you can catch my analysis of big biotech (and pharma too) at The Fool.

NeurogesX

Website: http://neurogesx.com
IPO date: 05/02/2007
Market Cap : $101 million
Shares Outstanding : 12.49mln
Float: 10.23mln

Neurogesx (NGSX) is a biopharmaceutical company developing and commercializing novel pain management therapies. More specifically, their main niche involves the area of neuropathic pain. Let’s take a closer look at the details and prevalence of this affliction, focusing specifically on the treatments NGSX has in the pipeline.

Therapeutic Areas

Neuropathic pain is caused by diseases or trauma that produce lesions in the central (e.g., stroke, spinal cord injury, multiple sclerosis [MS]) or peripheral (e.g., surgery, diabetic neuropathy, herpes zoster) nervous system. Peripheral neuropathy (neural damage in the extremities) is the most common which mainly affects the feet and legs. The most recent studies suggest that more than two million adults in the U.S. suffer from neuropathic pain.

Post-herpetic neuralgia (PHN) constitutes about 200k cases per year. In this disorder, factors such as age, illness, stress or medications can reactivate an otherwise dormant chickenpox virus (varicella-zoster), causing shingles (herpes zoster). The virus travels along nerve fibers, causing pain. When the virus reaches the skin, it produces a rash and blisters. These cases of shingles usually heal within a month, however in roughly 20% of cases the patient continues to feel pain long after the rash and blisters heal. This pain is known as postherpetic neuralgia.

Painful HIV-Associated Neuropathy (HIV-DSP) is among the most common of the pain syndromes afflicting HIV-infected individuals. It is thought that nearly one third of people with HIV/AIDS experience some peripheral nerve damage caused either by the virus itself, by certain drugs used in the treatment of HIV/AIDS, or by secondary complications from the disease.

Almost 16 million Americans had diabetes in 2005. Of these “complications” 60-70% of diabetics have mild to severe forms of nervous system damage. While the first sign of diabetic neuropathy is usually numbness, Painful diabetic neuropathy (PDN) often manifests in the form of a burning or other painful sensation most commonly in the feet and lower extremities.

Treatment

Over the counter analgesics such as acetaminophen and non-steroidal anti-inflammatory drugs have not been shown to be highly effective in the treatment of neuropathic pain. The treatments that are available for the above conditions are largely similar and the common underlying mechanism of action is reduction of neuronal hyperexcitability. Topically, Capsaicin creams derived from natural chili pepper plants have long been known to provide temporary relief. Similarly, Lidocaine (topical local anesthetic) patches are also effective for pain management. Both of these treatments last between 4 and 12 hours however, and require multiple applications per day. Both tricyclic antidepressants (TCA) and serotonin reuptake (SSRI) inhibitors are used to treat neuropathic pain, it should be noted that while generally SSRIs are safer for use in the general population, they have less consistent effects than the TCA class. Finally, anticonvulsants such as phenytoin (Dilantin), carbamazepine (Tegretol) and gabapentin (Neurontin) are frequently prescribed for neuropathic pain and have been shown to be effective in double-blind placebo controlled studies. Some caveats to the anticonvulsant class of medications include a relatively notorious list of adverse side-effects and unpredictable response to the treatment.

In summary, the therapeutic focus on neuropathic pain does in fact constitute an area of unmet medical needs. The major diseases which cause the neuropathies above (herpes zoster, HIV and especially diabetes) are ubiquitous illnesses which are not predicted to be decreasing in the future. Furthermore, treatment for these neuropathies (with the exception of topical agents), largely revolve around the secondary analgesic effects of neurological pharmacologics which in some cases may be beneficial if the patient is already depressed. Nevertheless, it seems there is still plenty of room in the market for a more subtle topical treatment option such as Neurogesx has developed.

Next time: Neurogesx flagship product, the trans-capsaicin patch. I’ll also cover their clinical trial status and scientific patents protecting their quasi-novel approach to management of neuropathic pain disorders.

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Before we get into investigating Rosetta Genomics in detail, I thought I would give a little background on micro RNAs since it’s the molecule that Rosetta has based its entire platform on.

Micro RNAs (miRNA) were discovered in worms about 14 years ago, but they have been found in a wide range of organisms (including humans) in the last few years. A subset of our genes encode miRNAs which are transcribed in the usual fashion creating primary transcripts (pri-miRNA). These long single stranded pri-miRNAs fold back on themselves to create hairpin stem-loop structures. The hairpins in the pri-miRNA are cleaved into short 70 nucleotide pre-miRNAs through drosha processing. These Pre-miRNAs are then exported from the nucleus. In the cytoplasm, dicer processing takes place where the RNA-induced silencing complex (RISC) binds to the hairpin RNAs and further cuts the RNA to make the final miRNA.

The miRNA is partially complementary to a messenger RNA (mRNA) that has been transcribed. This allows the miRNA/RISC complex to bind to the mRNA and inhibit its translation (production of proteins) either by directly blocking the translation machinery, or by stimulating the degradation of the mRNA. In essence, miRNAs work the same way as transcription factors in that they can control protein expression.

Interestingly, miRNAs have been observed to be overexpressed in some cancers. Increasing miRNAs should decrease protein expression, so you can imagine that these miRNAs might inhibit the expression of tumor suppressors although it is difficult to determine what genes miRNAs target.

How can biotechnology companies make money from miRNAs?

• Reagents-The easiest way for scientist to understand the function of a protein is to eliminate it from the cell and see what happens. The synthetic equivalent of miRNAs is small interfering RNAs (siRNAs) which can be used to inhibit translation and thus expression of a protein. Since miRNAs occur naturally in the cell, they may be favored by researchers if for no other reason than that they have been validated (ie they have been shown to lower protein levels). Additionally since understanding the impact of miRNAs on the cell is important, kits that measure the concentration of miRNAs may be marketable.

• Diagnostics-Currently protein levels are measured as an indication of disease in many diagnostic tests. Since miRNAs control the protein levels, the amount of miRNA in cells could also be used as a test for diseases like cancer where the levels of miRNAs have been shown to be altered.

• Therapeutics-miRNAs could be used to decrease a protein’s level in a diseased cell by overexpressing the miRNA that controls it. Conversely the level of the protein could also be up-regulated by inhibiting the miRNA in the cells with molecules that are capable of binding to (and inhibiting) the endogenous miRNAs.

Are miRNAs going to cure every disease? Probably not, but I’m looking forward to digging deeper into Rosetta Genomics plan for monetizing their intellectual property.

With the holiday weekend eating up my free time, the next report will likely be delayed until Tuesday or Wednesday.

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This is a continuation of my evaluation of Synta Pharmaceuticals. You can find the first 4 posts in the Synta Pharmaceuticals stock evaluation category.

Synta is a fairly small biotech company. As of the middle of January, they had 141 full time employees, 108 of which were engaged in research and development. Over half of those hold M.D. or Ph.D. degrees, which seems a little top heavy to me.

Synta was founded by Safi R. Bahcall, Ph.D. and Lan Bo Chen, Ph.D. Prior to becoming Synta’s CEO, Dr. Bachall was a consultant at McKinsey & Co, so he understands the business side of biotechnology. He also co-founded a biotech company focused on ion channel research, which was acquired by Synta in December 2002.

Dr. Chen is a Professor of Pathology, Emeritus, at Harvard Medical School and the Dana-Farber Cancer Institute. He is the Chairman of Synta’s scientific advisory board and seems to be the scientific side of the founding of the company. He has also co-founded multiple biotech companies that have been purchased (for stock) by Synta. I haven’t gone back and looked at the history of these transactions (with both Drs. Bahcall’s and Chen’s companies), but I get the impression that it was mostly a consolidation of multiple companies that the founders were associated with.

Before the IPO, Dr. Bahcall owned 7.8% of the shares and Dr. Chen owned 12%. The largest owner was Bruce Kovner with 27.4% of the companies shares. Caxton Corporation (a hedge fund) owns 26.9% of the company through CxSynta LLC, which is managed by Bruce Kovner. With that kind of money in the company, Kovner is obviously on the board of directors and has a high stake in the performance of the company.

Three of the members of the board (including Kovner, but not the two founders) bought an additional one million shares (1/5th of those made available) at $10 each during the IPO, so they clearly have faith in the company and think that it’s current value is around $10/share. While it would have been nice to see the co-founders investing more money, I’m more interested in Kovner’s investment (he bought $7.2 million worth) since he’s more of a business man and is less likely to be investing more just because it is his company.

Filed under: Synta Pharmaceuticals (SNTA) | 1 Comment »

This is a continuation of my evaluation of Synta Pharmaceuticals. You can find the first 3 posts in the Synta Pharmaceuticals stock evaluation category.

I won’t cover the rest of Synta’s drugs in too much detail since they are all relatively early in the pipeline, but here’s a synopsis on each:

STA-9090

STA-9090 is an inhibitor of the heat shock protein (Hsp90). Heat shock proteins in cells are responsible for making sure that other proteins fold correctly. Misfolded proteins are usually not functional, so inhibiting heat shock proteins will likely kill the cells. Many cancer cells have elevated levels of Hsp90, so this may be a way to kill cancer cells selectively. There is a lot of redundancy in the heatshock pathway, so I would be a little worried that lowering just one protein may have little effect on cell survival. On the other hand, Synta reports that STA-9090 has high toxicity (not a good thing) in preclinical animal studies, so maybe it does a good job at killing, but isn’t that specific. One advantage of attacking the heat shock proteins is that the drug can likely be used in conjunction with other treatments that affect other pathways, so it might not need to have that high of a kill rate to be effective. Synta expects to file an IND with the FDA in the first half of 2007.

STA-9584

Tumors require blood vessels to grow and even survive. If their network of blood vessels is cut off, the tumor can’t receive nutrients and the cells in the tumor will eventually die. Synta is developing a small molecule which disrupts existing vascular. This approach seems more promising than ant-angiogenesis drugs that just inhibit the formation of new vessels but can’t really kill the cells already in the tumor. The biggest thing to overcome will likely be selectivity (you don’t want to kill all your vascular system). I would imagine that they are planning on using it on tumors that can be injected into.

CRAC Channel Inhibitor

The Calcium Release - Activated Calcium (CRAC) channel is a protein complex on the surface of immune cells. CRAC channels allow calcium to enter the cells which causes activation of T-lymphocytes, mast cells, and other blood cells. The lack of activation allows for suppression of the immune system which could be used to treat graft-versus-host disease (GVHD), allergies, asthma and other immune disorders.

Ability to increase the pipeline

It’s really hard to analyze a companies ability to increase their pipeline. It’s a little bit of luck, and a little bit of skill, but the companies rarely give you a good picture of how much they’ve got of each. They’ve discovered 5 drugs in the 6 years since they were founded, so the rate of discovery seems pretty good. Some other thoughts:

They seem to use small molecules as drugs, which will almost always work better than biologicals (although harder, in my opinion, to find good candidates)

Their chemical library contains over 100,000 compounds for doing high throughput screens, but then again, so does everyone else.

Synta is large enough that they can do in vivo tests of the safety, efficacy, and pharmaceutical properties of candidate compounds in animal models. Not needing to rely on 3rd parties is a definite plus.

So, overall Synta’s preclinical pipeline looks OK. There’s nothing here to blow your pants off, but the drugs are all early in the pipeline. If I had to put my money on one of them, I’d bet on STA-9584, although the CRAC channel inhibitor looks promising as well.

With the analysis of the science for Synta done, next up at babybiotechs.com is the business side of Synta Pharmaceuticals. It may take me longer to plow through this area (since that’s not where my training lies) so please bear with me. I’ll try to keep to the same posting schedule, but the sections might be shorter.

Filed under: Synta Pharmaceuticals (SNTA) | 2 Comments »

This is a continuation of my evaluation of Synta Pharmaceuticals. You can find the first 2 posts in the Synta Pharmaceuticals stock evaluation category.

Chronic Inflammatory Diseases

IL-12 and a related protein, IL-23, are cytokines (signaling protein that gets transfered from one cell to another) which stimulates T-cells in the the immune system. T-cells normally attack bacteria and other microorganisms that enter the body. In chronic inflammatory diseases, which includes Crohn’s disease, rheumatoid arthritis, psoriasis, and multiple sclerosis among others, cells in the body express too much of the cytokine IL-12. This stimulates the T-cells to attack the body and an inflammation occurs. If you can stop the IL-12 from signaling to the T-cells, you can stop the inflammation. Typically this inhibition is carried out with antibodies to IL-12, which bind to the cytokine and inhibit its function. But antibodies can have problems with being degraded while in the bloodstream before they reach their target as well as problems with getting them into the patient at a high enough concentration to be effective. In general, small molecules make much better drugs.

STA-5326, an IL-12 inhibitor

STA-5326 (also called apilimod) is a small molecule that acts differently than IL-12 antibodies. The drug acts by inhibiting the transcription of IL-12 so that less mRNA is made. Lowering the mRNA levels results in decreased production and secretion of IL-12. Inhibition of transcription is achieved by preventing c-Rel from entering the nucleus where it acts as a transcription factor and helps stimulate IL-12 mRNA production.

The fact that it can be administered orally is a huge boost since patients (myself included) generally don’t like to have to inject themselves and I believe that all the other IL-12 inhibitors must be administered by injection.

Phase 2 clinical trials for both psoriasis and Crohn’s disease failed, which is a little worrisome, but diseases within the grouping of chronic inflammatory diseases are different enough that it’s probably worth conducting additional trials on other diseases. The psoriasis trial may have failed because the drug is taken orally and the drug may not be potent enough to reach the skin in high enough concentrations. Synta is considering making a topical version to test in an additional clinical trial for psoriasis.

STA-5326 is currently in two separate phase 2a trials, one for rheumatoid arthritis and another for patients with common variable immunodeficiency (CVID). The rheumatoid arthritis trial is only enrolling 20 patients which is probably a sign of their cash flow issues. It may not be enough to get a statistical difference, but they believe they can get enough data by measuring markers of inflammation to make it a positive trial. The second trial for CVID is being done in conjunction with the NIH and my bet is the trial is primarily being done to get the drug approved for CVID so that it can be used off-label for other diseases. Some CVID patients have gastrointestinal manifestations that are believed to be associated with high levels of IL-12 expression in the digestive tract. So they should be able to easily establish the effectiveness of STA-5326 in lowering IL-12 levels. Results for both are expected in 2007.

Next up on babybiotechs.com: The rest of Synta’s pipeline.

Filed under: Synta Pharmaceuticals (SNTA) | 2 Comments »

Before I get into evaluating stocks, I thought I’d talk today about my strategy for investing in small/startup biotech companies.

Drugs/Platform-High Probability of Success

Well, clearly this is the most important thing to evaluate and it’s where I’ll spend most of my time (then again, I’m a scientist, so maybe I’m biased). If the drug gets FDA approval, chances are really good that the stock is going to go up. So, we’re looking for drugs that will likely get approval, but we’ll still have to confirm that the drug has the chance to make money. If it’s got no competitor, great, but more likely we’ll have to figure out how much market share the drug can take if it’s only slightly better than its competitor; anything else is gravy.

We’ll take a look at the pipeline too, but companies don’t usually provide much information about drugs they have in the pipeline. We definitely want to invest in companies that have potential upcoming dugs, but they’re a long shot and years away at best, so drugs not currently in clinical trials won’t be counted towards potential share price. In short, we’ll count the lack of a pipeline as a strike against the company, but you don’t get any credit for having someone warming in the bullpen.

People-Money Before Brains

Now, you’d think that the most important thing in terms of management was how smart they are. While that’s important, and we’ll certainly take a look at it, I’m more interested in how invested the top management people are in the company. If their shirt is on the line, I figure our interests (share price) will be aligned. After a stock purchase, this is something to keep an eye on. If you see insider selling, it’s a good idea to reevaluate your position. On the other hand, if you see them buying more shares, it’s a sign they have confidence in their potential product; you might want to have a second look and add to your position.

Financials-Burn Rate Is King

Since the companies I’ll be evaluating generally don’t have any profits, the number one criteria for evaluating their financials is their burn rate. If they don’t have enough money to last until they get their first drug to market, they’re going to have to get more financing (by taking on a development partner, selling the rights to the product, or by offering more shares). This usually results in a lower share value because of the loss (or dilution) of the potential profits.

Bringing It All Together-A Formula

So assuming no red flags have popped up in the above sections we can use a simple formula for figuring out stock price:

(Drug market * Expected market share * Chance of getting to market)/ total shares=Expected earnings per share

Expected earnings per share * expected PE = Buy price

If the actual stock price is lower, then it’s a buying opportunity. Does that mean you should buy? Well, maybe, but maybe not. The two I put in bold are basically educated guesses. You have to feel comfortable that your guesses are correct. Also, you need to balance your risk. If a drug has a 5% chance of getting to market, it doesn’t really matter if it’s a current bargain, because it’s still a long shot. The law of averages says you need to invest in a lot of those (about 60) to make sure you’re going to make money.

Next up on babybiotechs.com: Synta Pharmaceuticals

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